Quest Diagnostics Incorporated (DGX): A Bull Case Theory

We came across a bullish thesis on Quest Diagnostics Incorporated (DGX) on Substack by Magnus Ofstad. In this article, we will summarize the bulls’ thesis on DGX. Quest Diagnostics Incorporated (DGX)'s share was trading at $163.80 as of April 17^th. DGX’s trailing and forward P/E were 21.30 and 16.86 respectively according to Yahoo Finance.

Despite signs that the market may have bottomed out, Quest Diagnostics (DGX) remains a compelling investment opportunity, particularly in the current uncertain economic environment. Founded in 1967 and headquartered in New York, Quest Diagnostics is a global leader in diagnostic information services, providing laboratory testing, genetic and molecular diagnostics, and health data analytics to healthcare providers, patients, employers, and insurers. The company operates a vast network of laboratories and patient service centers across the U.S. and internationally, including in Canada, Brazil, Mexico, and India. With a market capitalization of $18.18 billion and a forward dividend yield of around 2%, Quest stands as a solid, recession-resistant business.

Quest's operations continue to evolve with advancements in digitalization and robotics, which have enhanced efficiency in its testing processes. The company’s model involves the collection, transport, and analysis of test samples like blood and urine, ultimately delivering results to healthcare providers and patients. This longstanding operational framework has been augmented over the years, making Quest one of the most efficient players in the diagnostic services market.

The company’s growth is driven by several key factors. As the population ages and the prevalence of chronic diseases increases, the demand for diagnostic testing is rising. In addition, innovations in laboratory diagnostics, particularly in oncology, brain health, and autoimmune disorders, are expanding the scope of testing. Growing consumer interest in proactive health management further drives demand for Quest’s services, while the adoption of AI and automation enhances cost-efficiency, boosts productivity, and improves test accuracy. Quest is forecasting 9% revenue growth in 2025, with long-term organic revenue growth projected at 4-5% and adjusted EPS growth at 7-9%. These projections underscore Quest's ability to deliver sustained growth, even in a post-pandemic world.

Quest’s growth is also supported by its disciplined acquisition strategy. In recent years, the company has expanded its footprint by acquiring LifeLabs in Canada, Spectra Laboratories, and Allina Health. These acquisitions are expected to add significant revenue, particularly LifeLabs, which will contribute over $700 million annually. While the initial impact of these acquisitions may be slightly dilutive to earnings, the long-term prospects remain strong as Quest integrates these assets into its operations.

Currently, Quest Diagnostics is slightly undervalued, with a fair value estimate of $180 per share, compared to its current price of $163.80. With its strong growth potential, strategic acquisitions, and solid operational foundation, Quest presents an attractive investment opportunity for long-term gains, making it a compelling choice for investors seeking stability and growth in an uncertain market.

Quest Diagnostics Incorporated (DGX) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 40 hedge fund portfolios held DGX at the end of the fourth quarter which was 32 in the previous quarter. While we acknowledge the risk and potential of DGX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DGX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.